Senate sends gasline bill to House

Post date:

Wed, 03/19/2014 - 12:46pm

JUNEAU — The Alaska Senate passed Gov. Sean Parnell’s bill authorizing the state to invest in a large gas pipeline and liquefied natural gas project on March 18.

Minority Democrats in the Senate put up 17 amendments and senators spent much of the day in debate. All of the amendments were voted down, and the final bill, Senate Bill 138, passed 15 to 5. It now moves on to the House.

The bill is expected to pass the Republican-controlled state House but a critical review of the role of TransCanada Corp., the state’s partner in the deal, is expected there, as well as a review of a Senate provision to set aside 10 percent of revenues from sales of state LNG for a fund to build gas infrastructure in small communities.

The Senate-passed bill contains a provision for individuals, municipalities and Alaska Native corporations to be able to invest in a part of the state’s share of the project.

The state and TransCanada would team up with the three major North Slope gas owners ExxonMobil, ConocoPhillips and BP. A large gas treatment plant on the North Slope, an 800-mile, 42-inch pipeline and a large LNG plant in Nikiski will be needed.

Costs for the project are currently estimated at $45 to $65 billion but those estimates will be refined in further engineering studies that would begin this year and be completed in 2016 if state participation is approved by the Legislature.

A final decision to proceed with the project, which would produce 15 million to 18 million metric tons of LNG yearly, could come in 2019 with construction to be completed by 2024, according to the producers’ tentative schedule.

North Slope producers want the state involved as an equity owner taking 20 percent to 25 percent of the project as a way to assure stability in royalties and taxes, which the producers say is essential for the project to proceed.

The plan is for Alaska to take its gas royalty and production taxes in-kind, or in the form of gas, and sell the in-kind gas as LNG under its own marketing arrangements. Most of the LNG would be sold in Asia, the companies have said.

As currently proposed, the state would have a side-deal with TransCanada to share part of its 25 percent, which would relieve the state of some of the investment burden.

The state could take on the 25 percent by itself without TransCanda, which some legislators are urging, but doing so would severely strain the state’s financial resources, state administration officials have said.

The more affordable option, state Revenue Commissioner Angela Rodell and state Natural Resources Commissioner Joe Balash said, is for TransCanada to take responsibility for financing Alaska’s share of the Slope gas treatment plant and pipeline, which would leave the state with having to fund only a share of the LNG plant at Nikiski.

As a pipeline owner, TransCanada would transport the state’s share of gas production. The deal also gives the state an option to purchase 40 percent of TransCanada’s share of the pipeline and treatment plan before construction begins.

TransCanada’s role has emerged as a point of contention in the Legislature, however. Former Alaska Gov. Frank Murkowski, who advanced a somewhat similar plan in 2006, has been urging legislators to take TransCanada out of the deal, arguing the state is giving up too much to the pipeline company.

The state could finance its entire 25 percent share with its bonding capacity and Triple AAA credit rating and get all of the benefits of its deal rather than sharing them wirh TransCanasa, Murkowski has argued.

Several senators agree with the former governor. “This agreement gives TransCanada a sole source contract to transport the state’s gas. I think we should put this out for bid,” Senate Minority Leader Hollis French, a Democrat from Anchorage, said in the Senate debate March 18.

French said a Memorandum of Understanding setting out terms of the state-TransCanada partnership has terms that could put the state to a disadvantage.

“It was drafted in the back rooms and given to us,” he said.

However, Sen. Cathy Giessel, a Republican from Anchorage who chairs the Senate Resources Committee, disagreed with French.

Having TransCanada as a partner reduces the amount the state will have to invest and allows the state to afford to take on more of the gas share and LNG plant equity and retain the option to buy 40 percent of TransCanada’s share, she said, responding to French. The state would have that option in 2016.

“What’s more important is our having an experienced pipeline company like TransCanada as our partner in dealing with the producing companies, as well as sharing our interest in future expansion,” which the producers may not share, Giessel said.

Sen. Anna Fairclough, R-Eagle River, agreed with Giessel.

“TransCanada’s pipeline construction track record shows us that they are consistently either on or under budget, with minimal delays for their scheduled completion,” Fairclough said in closing remarks before the senate vote. “Finding another partner could also be a lengthy process, and consultants have told is that each year’s delay in the project could potentially cost the state $800 million dollars in value.”

If the deal goes through, Alaska could earn about $4 billion per year from LNG sales although part of that would be paid to TransCanada for shipping the state-owned gas, she said.

TransCanada will face additional scrutiny in the state House where some Republican House leaders are known to be unhappy with the company’s involvement in a previous effort to build a gas pipeline that was spearheaded by former Gov. Sarah Palin.

Palin’s plan, under the state’s Alaska Gasline Inducement Act, or AGIA, involved a license issued to TransCanada to develop a gas project independent from the major producers. The state offered TransCanada a $500 million subsidy to take on the AGIA license, with about $300 million of that paid so far.

North Slope producers would not support Palin’s AGIA plan, however, because it included tariff requirements on expansions and terms on financing the overall project that the companies objected to.

Mainly, however, the producers felt they need to own a share of the project equal to the gas they would ship, so that each producer ships its own gas, and they did not want to cede control of the project construction, with its risks, to a pipeline company.